The Russian miner’s sales slumped 26% to $807 million in the
second quarter ending June 30, it reported Thursday. An oversupply of rough and
polished in the manufacturing and retail sectors has hurt appetite for the
company’s goods, Alrosa explained. At the same time, jewelers are actively attempting
to hold less stock, creating a further negative effect for dealers.

“Ongoing consolidation in the jewelry sector and growth in
jewelry sales through online channels in the US result in a non-recurrent
reduction in polished-diamond stocks across the retail sector, as businesses
embrace more efficient stock-management practices, which…in turn impacts rough-diamond
purchases by [the] midstream,” Alrosa said.

Indian diamond manufacturers’ difficulties obtaining credit
have also weakened rough demand, the miner added. Its sales of rough diamonds
fell 25% to $796 million for the quarter, while polished revenues slid 58% to
$11 million. Sales value hasn’t been that low since the third and fourth
quarters of 2015, when a slowdown in consumer demand led to the rough market
almost grinding to a halt.

Alrosa’s rough-price index — which tracks like-for-like
price fluctuation for diamonds up to 10.8 carats — declined 1.6% versus the
first quarter. The index fell 4.6% during the first half of the year. The
average selling price for rough decreased 18% to $96 per carat compared with a
year ago, reflecting the drop in the price index and a shift in sales mix
toward smaller, lower-value diamonds. Sales volume dipped 8% to 8.3 million
carats.

Production rose 14% to 9.7 million carats due to the
commencement of operations at the Verkhne-Munskoye mine in Yakutia, as well as
higher grades at the Butuobinskaya pipe and at the Severalmaz division, which
runs the Lomonosov deposit in the Arkhangelsk region. Alrosa’s stockpiles grew 36%
year on year to 15.9 million carats as of June 30, as mining output exceeded sales
volume.

In the first half, total diamond sales fell 33% to $1.81
billion, while production increased 10% to 17.6 million carats.

The company expressed optimism for the rest of the year as
the fourth-quarter holiday period approaches, despite the midstream challenges
and the negative impact of the US-China tariff war on key jewelry markets.

“Demand from jewelry consumers remains stable, which bodes
well for renewed activity and higher demand for rough diamonds closer to the
end of [the third quarter] in the run-up to [the] 2019-2020 Christmas sales
season,” it noted. Image: The Lomonosov mine. (Alrosa)